Incumbency Bodes Well for the Real Estate Market

Experts from Mannatt, Phelps & Phillips weigh in on the upcoming election's effect on the commercial real estate market.

Grace Winters

The presidential election season can be a difficult time for the commercial real estate market. Uncertainty about the future financial and regulatory climate often leaves investors, developers and owners waiting on the sidelines for the outcome of the election. As the 2016 presidential election approaches, we began to wonder whether there is a predictable trend in the commercial real estate market’s reaction to presidential elections.

Dana Gomez-Gayne

If the post-election market trends over the last thirty years are any indication, it is good to be in the real estate space when the incumbent party remains in the White House. Since 1980, five out of the nine election cycles ended with the incumbent party remaining in power. For each of the nine elections, we compared pre-election data points to information from two years later and focused on two factors that tend to be good predictors of increased activity in the commercial real estate market: declining rates of unemployment and growth in gross domestic product.

In four out of the five presidential elections where the incumbent party remained in office, unemployment rates declined. The one exception to this trend was the recession of the early 1990’s following the 1988 election, where the incumbent party remained in office and unemployment rose by nearly 17%. Conversely, unemployment rates increased by more than 40% in three out of the four periods following a party change in the executive branch. The exception here was the 1992 election, where the White House changed parties and the economy bounced back following the end of the recession in 1991.

We also saw significantly more growth in gross domestic product in periods where the incumbent party won the election than in post-election periods where the incumbent party failed to retain the presidency. The only exception to this trend was the post-recession economy in 1992, where gross domestic product showed sizable growth despite the fact that there was a party change in the executive branch.

While there seems to be a consistent increase in certain positive factors for the commercial real estate market following presidential elections where the incumbent party remains in the White House (absent overriding turmoil in the economy), it remains to be seen if the 2016 presidential election cycle will follow this path or end up being an exception to the rule. Certainly, this year’s primary season delivered some unexpected and unprecedented twists and turns. All other things being equal, however, it does seem that increased activity in commercial real estate may be more likely in the next few years if the Democrats retain control of the presidency. In any event, real estate professionals should remain in close contact with their legal advisors over the coming months to maintain flexibility on pending deals and be prepared to take action on future projects when the time is right.

Dana Gomez-Gayne is an associate in the Real Estate & Land Use Practice Group at Manatt, Phelps & Phillips, LLP, located in the Los Angeles office. Grace Winters is an associate in the Real Estate & Land Use Practice Group at Manatt, Phelps & Phillips, LLP, located in the Orange County office.